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IMF Staff Concludes Visit to The Kyrgyz Republic

February 16, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Growth accelerated towards the end of 2016, reaching 3.8 percent with
0.5 percent deflation due in part to exchange rate appreciation of
about 9 percent.

Consolidation efforts should continue to meet the 2017 fiscal deficit
target of 3 percent of GDP.

The passage of the anti-money laundering and counter finance of
terrorism law is vital for the stability of the financial sector.

An IMF mission led by Mr. Edward Gemayel visited Bishkek during February
9–15, to take stock of the latest economic developments, discuss progress
on economic reforms, and prepare for the upcoming combined Article IV
consultation and fourth review under the ECF program planned for April.

At the conclusion of the visit, Mr. Gemayel issued the following statement:

“With external pressures subsiding, economic indicators have improved, but
the recovery remains modest. Growth accelerated towards the end of 2016,
reaching 3.8 percent with 0.5 percent deflation due in part to exchange
rate appreciation of about 9 percent. Despite a shortfall in tax revenue,
the 2016 deficit was contained to 4.5 percent of GDP due to restrained
spending on non-priority items and the rephasing of some investment
projects.

“Consolidation efforts should continue to meet the 2017 fiscal deficit
target of 3 percent of GDP. It is important to continue to implement
revenue and expenditure measures announced last year, including the
elimination of the value added tax (VAT) exemption on flour, rationalizing
the public sector wage bill, and streamlining spending on goods and
services. Resisting spending pressures will be critical in the run up to
the presidential election. Developing a credible and transparent fiscal
rule will help maintain fiscal discipline.

“The current neutral and cautious monetary policy stance is appropriate.
Further easing should be conditional on inflation being on track to reach
the target range of 5-7 percent. The National bank of the Kyrgyz Republic
(NBKR) should continue to carry out foreign exchange interventions only
when necessary to smooth out excessive fluctuations while maintaining
two-way flexibility.

“Efforts to bolster financial sector resilience should continue. The
liquidation of banks remaining under DEBRA should be completed as planned.
The unification of bank capital requirements should not be delayed.

“The passage of the anti-money laundering and counter finance of terrorism
(AML/CFT) law is vital for the stability of the financial sector. The law
is necessary to keep the Kyrgyz Republic on the white list of the Eurasian
Group on AMl/CFT. Failure to pass the law could lead to loss of
correspondent banking relations and cut the financial sector off from the
outside world.

“During the visit, the team met with government officials, private sector
representatives, and the diplomatic community. The IMF team would like to
thank the Kyrgyz authorities and technical staff for a warm welcome and
constructive discussions.”